The end of every year presents us with a time for contemplation, reminiscing on the events of the past 12 months, and an opportunity to set goals for the year ahead. In the spirit of the tradition of making personal New Year’s resolutions, this week is a good time for payments industry players to take stock of what happened in 2015 with the intention of making 2016 even better. What went on in payments in 2015, and what did those events and trends tell us about what’s coming in 2016? Further, what resolutions can merchant service providers (MSP) commit to pursuing in the coming year that will keep them competitive in a fast-evolving market?
Looking Back: EMV Migration
In October 2015, the United States became the last major market to transition to EMV, or chip, cards. Despite the large quantity of ink spilled over the subject in the media, the date of the liability shift for non-EMV transactions passed without much fanfare for many merchants. Depending on who you asked in the months leading up to the deadline, anywhere from 25-44% of retailers planned to be ready to accept EMV cards come October 1. Regardless of which estimate you believed, the fact seemed to be that a significant number of merchants had no urgent plans to update their systems to accept EMV cards, and not only that, a good number of banks hadn’t issued chip cards to their customers by October, either.
However, despite the slow rollout, EMV is here to stay. The transition will be complete eventually, though likely not till after October 2017, which is when the liability shift will hit gas stations. And though banks and merchants haven’t approached the liability shift with as much urgency as the industry might have expected them to, preparations from all players in payments should be ongoing. The question is, just what should those preparations be?
New Year’s Resolution: Help Merchants Look to the Future
For many merchants, the migration to EMV is at best a necessary evil, and at worst a drain on resources with seemingly few upsides. Especially for those merchants in what are considered low-risk verticals, such as restaurants, the perceived benefits of being EMV-ready aren’t nearly enough incentive to invest the costs required to update hardware and software, not to mention training staff in accepting EMV cards.
The job of the MSP in this case is to educate merchants about the potential boon this transition might be for them, even beyond merely equipping them to take chip cards. Though EMV card acceptance is an important part of this transition, it need not be the only one. In addition to the obvious benefit of enabling customers to use their EMV cards in-store, upgrading the POS system offers merchants
- The possibility of fewer fraudulent card present transactions
- Increased protection from liability should fraud be attempted
- The opportunity to invest in devices that will prepare them for future shifts in consumer payment behaviors; many EMV devices come with near field communication (NFC) technology, which is becoming de rigueur due to the increasing popularity of NFC-enabled smart cards and mobile phones
- Competitive edge over merchants who are not enabled to accept EMV or mobile payments
This coming year, merchant acquirers should resolve to assist their merchants who’ve not yet jumped aboard the EMV train to get on board—the real benefits might be further down the road than we’d hoped, but they will materialize.
Looking Back: Omnichannel Commerce
Less than two months ago, I wrote about omnichannel retail posterchild, Starbucks, and the company’s unlikely success in mobile payments. From Starbucks, an outsider making waves in the payments industry, fin serv professionals learn that addressing the needs of the end consumer really can lead directly to profitable innovation. The success of the original Starbucks payment app, as well as their newer Mobile Order & Pay, can be partly attributed to a consumer-centric ideation process: as Adam Brotman, chief digital officer of Starbucks says, “Bringing Mobile Order & Pay to our customers is about meeting their needs of convenience and customization at any time of the day.” MSPs in particular stand to gain much from considering the desires of retail consumers when evaluating their strategy for acquiring and servicing merchants.
New Year’s Resolution: Develop Marketing Strategy with End Customers in Mind
ISOs, VARs, and ISVs are B2B companies that really, in the end, serve the almighty C(onsumer). Merchants want payment solutions that are 1) affordable, and 2) conducive to making their customers happy. And what makes consumers happy? When it comes to payments, convenience, rewards, and options, according to MasterCard’s 2015 Retail Social Listening Study.
In 2016, savvy merchant acquirers will turn their attention to getting their merchants on the same page with consumers by addressing how to make payments more convenient, rewarding, and diverse. Though there are no simple ways to go about doing this, consider starting with these tips:
- Convenience: This is where the “omni” in omnichannel comes into play most.
- A consumer wants to be able to shop in multiple venues at times most convenient to him or her. In-store, online, in-app, or a combination of the three should ideally, all be possibilities for 2016’s consumer. This means merchants need a presence in these spaces, but also must offer payment options that are viable for each.
- Merchants not only need to offer these payments, but also need to make them as easy as possible. Removing friction at the POS, both in-store and online or in-app, is crucial to converting every shopper into a paying customer.
- Rewards: Customers are made loyal through incentives.
- Capturing consumer loyalty is a significant driver of innovation across the commerce spectrum, including the payments sector. The type of incentives that can be linked to payments vary depending on the merchant’s vertical.
- Providing customers with rewards for their payments behaviors can be made much easier with technology—accurate reporting is crucial here, which makes the use of forward-thinking payment technology software providers necessary to help track transaction details. MSPs have become responsible for making the best in payments technology available to their merchants, not to mention educating them how to use that technology.
- Options: The days of single-venue sales are fast coming to an end, and to prepare for the inevitable total conflation of in-store and online shopping, merchants must be equipped to handle multiple methods of payment.
- Customers want options, and the most successful merchants will be those who provide them. Consider encouraging merchants to add support for different types of in-store payments, including credit/debit cards, mobile, and gift cards (in addition to traditional forms such as cash and check).
Looking Back: Payment Facilitation
Payment facilitation, formerly called merchant aggregation, has gained a good deal of traction in the industry after years spent proving itself as a viable business model. According to Roy Banks, CEO of NMI, “The main draw of payment facilitation as a form of merchant services is that it removes friction from boarding and servicing merchants.” Traditional merchant accounts will likely have a place in the payments industry for many years to come, but the fact is that not all SMBs are suitable for a traditional merchant account, but those companies still need to process payments. Payment facilitation bridges that gap nicely, and its validity was proven handily in 2015 by the nearly $300 billion in processing volume handled by just two payment facilitation companies, PayPal and Square.
New Year’s Resolution: Consider Payment Facilitation Model for Underserved Merchant Segments
Although payment facilitation isn’t necessarily a novel concept, it’s currently enjoying a renaissance for one major reason: the development of technology that makes the business model profitable. In the past, companies that wanted to register as payment facilitators had to build technology to support their business from the ground up, which is a prohibitively expensive process. In fact, many would-be payment facilitators have suffered from failure to launch due to the lack of adequate infrastructure.
However, technology is starting to catch up to the needs of the market, and those who stand to benefit most are ISOs and VARs who are already immersed in the merchant services space. All these entities need is the right payment facilitation platform to assist them in boarding and servicing merchants.
Looking Back: Big Data
During 2015, the march of progress was relentless, perhaps nowhere more evident than in the realm of big data. There we saw the release of Internet of Things darling the Apple Watch, data breaches of frightening scale as in the case of Ashley Madison, and hundreds of billions of dollars spent by megacorporations like Microsoft and Dell in the acquisition of data storage and analytics technologies.
The payments industry is not immune from the progress spurred by the ubiquity of big data—after all, transactional data is among the most highly prized, as it lends insight into consumer spending habits and personal identifying information. Merchants who want to remain relevant in an age where information is a commodity must invest in the technology that will allow them to gather, store, and analyze that data. The MSP’s responsibility is two-fold: to 1) educate merchants about what technology is necessary to gain insight into their customers’ shopping habits, and 2) illuminate for merchants the pressing need to secure their customers’ data.
New Year’s Resolution: Focus on Security
The increasing worth of data to companies naturally implies the increased worth of that same data to criminals. Identity theft and payments fraud remain a concern year after year: in 2014, around 17.6 million Americans were victims of identity theft, and 62% of companies were subjected to payments fraud. Criminals know how much transactional data is worth, and will go to great lengths to get it. Even the world’s largest companies are at risk, as evidenced by the Target data breach of 2013. All this isn’t to say that merchants shouldn’t involve themselves in the acquisition of consumer data. In fact, these statistics only support the notion that those merchants who don’t invest in big data will be left behind.
Rather, the point to be made here is that with the availability of data should also come an investment in data security. Merchant acquirers should already be encouraging their merchants to look into security for the sensitive data they process, and the prevalence of big data serves as yet another motivator to do so.
For the payments industry, 2015 was a year of innovation, and 2016 promises to yield much of the same kind of progress. Merchant service providers have a clear priority when it comes to making 2016 profitable for their merchants: education. The theme common to all of the MSP’s New Year’s resolutions is that of payments literacy; ISOs, VARs, and ISVs must provide their merchants with the tools necessary to make payments work for them.